On discussing Tesla on our board

Investment Analysis Clubs Saul’s Investing Discussions
1

In the past we had to make Tesla off-topic because people had very emotional feelings about it (like politics, and especially if they owned a Tesla car, because anyone who had a Tesla car had fallen in love with it, and with the company as an extension of the car), and discussions in the past had regularly turned into viciously angry, aggressive, arguments.

On this new board we’ve managed to have some discussions which remained polite, cooperative, and useful, so I’ve lifted the prohibition on discussions of Tesla on a trial basis.

If you wish to comment on Tesla, the company, as an investment, please do so, but please don’t tell us all about how much you love your car :grinning:.

This thread would probably be a good place to start a discussion if you would like.

Saul

39 Likes
2

I’ve seen a number of opinions on Seeking Alpha and other places that Tesla has given away its key competitive advantage by making its chain of recharging stations open to anyone, and having others open to Tesla cars.

I totally disagree. I think Tesla’s competitive advantage is its cars.

I think what has held back EV’s has been the fear that if you go on a long trip in your EV you may not find a place to recharge that fits your car.

It has been as silly as if each make of gasoline car had a different shaped pump nozzle and you had to find the right gas station. Just think of it like that. This will make a huge jump in consumer acceptance of electric vehicles in my opinion, and will be good for all brands, but the change in mind set will be especially important for Tesla which is the dominant brand.

JMHO

Saul

46 Likes
3

I have some additional thoughts on the charging standards front:

  1. The deals with Ford and GM (jockeying for positions #2 and #3 in the US), establish that Tesla’s NACS connector will be the defacto standard, since both automakers have committed to providing NACS ports natively in their vehicles starting with MY 2025. There will be simply less demand for CCS charging stations with the top 3 EV OEMs supporting NACS instead.

  2. The monies from Ford/GM (undisclosed how much the companies are paying Tesla to integrate with Tesla’s charger-unlocking payment back-end) combined with the monies those drivers pay Tesla for juice, make it easier for Tesla to further expand their already #1 charging network.

  3. GM and Ford get to remove a current impediment to their EV sales (read any non-Tesla forum to see how bad road tripping in a non-Tesla in the US is), but Tesla gets to have GM and Ford owners pull up to Tesla branded “pumps” to charge. Road tripping for everyone will be better, but everyone will know its because of Tesla. The legacy OEMs have “tapped out” to borrow a wrestling phrase.

  4. Tesla vehicles overall support faster charging rates than Ford/GM. For instance, the Ford Mach-e tops out at 150kW (the standard range Mach-e tops out at 115kW). Tesla’s vehicles and V3 chargers have a maximum 250kW rate. This makes Tesla continue to drive the technology as fast as they can to stay ahead of everyone else.

  5. All the other US charging networks - except Electrify America (mandatory funding from VW due to a Dieselgate settlement) - have announced support for Tesla’s NACS standard. That makes sense: why wouldn’t you want to support the top 3 selling EV OEMs?

  6. The dominos are falling. Even CharIn, an organization supporting CCS, has seen the writing on the wall. After Ford’s announcement, they issued a release saying they still support only CCS, to after GM’s announcement “also supports the standardization of Tesla NACS”.

  7. I predict that for some combination of more OEMs supporting NACS combined with standards orgs adoption of NACS that the US government will have to unlock more charging infrastructure dollars to Tesla. Right now Tesla is getting monies from the US government for their SuperChargers that have the “Magic Dock,” which is an adapter that lets CCS vehicles charge at Tesla SuperChargers (using the Tesla app), but these agreements mean less of those will be needed/wanted.

That all said, I do understand the perception that Tesla’s “moat” of having the only viable charging infrastructure is going to go away. But, one has to consider what government incentives and other OEMs banding together might have tried to do to counter that moat. This removes all incentives for anyone to compete (Mercedes, VW, Hyundai have got to be watching this) in the US on charging infrastructure. No-one’s going to try to beat Tesla at charging, they’re going to play in Tesla’s playground - and pay for the privilege. Besides, as Elon says, it’s the best thing for EV adoption overall, which has been part of Tesla’s Mission Statement for over a decade and half.

50 Likes
4

For the Tesla (the company) hyperfans…what are the components of Tesla that could spin out into other companies, and, would a current owner get parts of those companies?

  • Starlink - there is already press about that being spun out, would you get part of that, and would you want to keep it?

  • Power/Energy Storage - what is included here, and has there been any hints on this getting a spin off? (Is this just large scale storage like in Australia or does it include power walls and possibly even solar?)

  • Does battery manufacturing get its own chance? If it did, would it just become commodity like duracell/energizer batteries?

Are there any reports where the divisions are broken down by earnings (last I recall, years ago, there wasn’t)? Would those earnings by division make any of the parts more Sauldom worthy?

I am interested here, mostly in the car company side and I want to see what the Cybertruck does for the stock. I am a reservation holder (dual motor model) and I think that it should make for interesting volatility, but my time horizon for a ‘car company’ would be very short after that. I have a test sized holding (restarted) about a week back.

6 Likes
5

Starlink is not Tesla.

Who Owns Starlink? It's Not Just Elon Musk!.

Denny Schlesinger

13 Likes
6

Shoot, right, see how much I am paying attention? LOL. Starlink is part of SpaceX.

2 Likes
7

This week, Musk tweeted that Tesla “aspires to be as helpful as possible to other car companies” and is “enabling other companies to use our Supercharger network.” He added, “Also happy to license Autopilot/FSD [full self-driving] or other Tesla technology.”

I’ve heard some say Tesla could accrue billions from its Ford and GM charging partnerships in the years ahead (perhaps in part from savings of advertising dollars every time a competitor drives up to a Tesla station. Details on the GM deal state that there are no fees going to Tesla directly.); yet, Many an analyst believes that this Tesla just getting started with services revenue.

Piper Sandler estimated in a research note that Tesla could add upwards of $3 billion in charging revenue from non-Tesla owners by 2030 and $5.4 billion by 2032.

Such revenue if they’re right, would go along with federal incentives and at least help Tesla expand its charging network.

I don’t know. Like I said, after reading some details released on the GM deal this isn’t the case.

I do believe in Tesla and that it’s more than just a car company.

Tesla Analyst, Dan Ives (Admittedly a perma-Bull on Tesla)
“From batteries to Superchargers to storage—the sum-of-the-parts thesis is now starting, I believe, in the early stages to play out with investors,”.

(not TAMs, necessarily) https://youtu.be/Xx_H3skDCZck - on Energy.

IMG_1058.png

Along with the possibility of a rate hike pause (rate hikes directly effecting the price of financing a vehicle), the over all narrative on Tesla seems to have shifted to the positive.

Despite my reservations regarding the apparent lack direct serving fees going to Tesla, I’m ridiculously overweight here and I just can’t get myself to want to move the money, not now.

Best

Jason

15 Likes
8

Tesla’s quarterly and annual earnings releases break out revenue from 3 businesses:

  • Automotive ($19,963M in Q1)
  • Energy Generation and Storage ($1,529M in Q1)
  • Services and other ($1,837M in Q1)

Here’s the Q1 Shareholder deck commentary on non-Automotive Highlights:

  • Energy Storage
    Energy storage deployments increased by 360% YoY in Q1 to 3.9 GWh, the highest level of deployments we have achieved due to ongoing Megafactory ramp. The ramp of our 40 GWh Megapack factory in Lathrop, California has been successful with still more room to reach full capacity. This Megapack factory will be the first of many. We recently announced our second 40 GWh Megafactory, this time in Shanghai, with construction starting later this year.

  • Solar
    Solar deployments increased by 40% YoY in Q1 to 67 MW, but declined sequentially in the quarter, predominantly due to volatile weather and other factors. In addition, the solar industry has been impacted by supply chain challenges.

  • Services and Other
    Both revenue and gross profit from Services and Other reached an all-time high in Q1 2023. Within this business division, growth of used vehicle sales remained strong YoY and had healthy margins. Supercharging, while still a relatively small part of the business, continued to grow as we gradually open up the network to non-Tesla vehicles.

For those that want to crunch more number details, here’s the Q1 10-Q, which includes not just the revenues, but the cost of revenues. However, Tesla does not break down things like R&D or selling expenses separately for the different businesses. My impression is that people within Tesla are pretty fluid in what they’re working on. For instance, some people moved off of FSD development into Optimus robotics.

20 Likes
9

My very brief thesis on Tesla is as follows:

  • Tesla is more than happy to partner with other car makers on the usage of their charging network as it brings more people into their ecosystem.

  • The other car makers are more than happy to gain access to charging stations as R&D costs, plus timeline to execution, must surely be daunting to ponder.

  • The above will inevitably apply to Full Self Driving (FSD) technology.

  • Tesla produces/sells around 1.5m - 2.0m cars annually each year, whereas there are an estimated 1.4 billion cars in existence today. Lets be extremely conservative here and say Tesla would be able to license their FSD to 100 million cars annually over the next decade or two.

  • How much would a license cost once fully developed? $1,000/one time payment? $2,500/one time payment? Yearly payments at those rates? In any situation, this will be a HUGE increase in revenue to Tesla and at very high margins.

I am very long Tesla, and should almost certainly profit tremendously doing nothing more than holding over a 10 year timeframe.

18 Likes
10

IMHO Tesla’s competitive advantage resides in the enormous amount of real world data they have collected from their cars. Considering the head start Tesla has, no other manufacturer will ever be able to come close to capturing a comparable AI training store. At least not for many several years.

Apparently, FSD is already in beta test (please correct me if got that wrong). FSD will be available for all models on a subscription basis. Tesla will be the first and only car maker to have a source of recurring revenue.

And it’s not only FSD that will be a direct outcome of the data Tesla has accumulated. It will be the basis for reducing costs and delivering improvements to Tesla vehicles on an on-going basis.

12 Likes
11

Does the Tesla Semi add anything to the overall ‘car’ company? I am thinking most hauling truck companies are not good investments - Kenworth, Freightliner, Peterbuilt, Volvo, etc…

…not sure if making them electric makes the business any better. Off the top of my head, it is more a marketing/mindshare kinda thing?

4 Likes
12

Yes if you don’t think of Tesla as solely a car company. Think of Tesla as a battery/energy company. The more products they can put batteries into the more flexibility they have.

Denny Schlesinger

10 Likes
13

My Tesla thesis is entirely how Tesla is disrupting the auto market. Yes, it’s very important to think of Tesla as an energy company to arrive at Tesla’s future value. This is where looking at the sum of the parts is essential, IMO.

How Tesla will completely disrupt the short to mid distance hauling of freight business (apparently hydrogen is better at long hauling) is Teslas production processes (not to mention FSD hardware being added into every truck presently).

SemiTruck ICE OEMs are significantly behind car manufacturers in their efficiency in building product. Tesla manufacturing processes for auto’s (what Mr. Toyota said was a ‘work of art’) is again being made dramatically more efficient by Tesla this year (see Tesla plans for their construction of the Mexico Giga-factory being built presently.

My understanding of Tesla’s production processes when building the Tesla Semi is that Teslas advantages in efficiency gains in that space is profoundly greater than Tesla’s current advantage over auto OEMs.

There are several YouTube videos on this subject. Sorry I have no link at this time. I think it was the Captain who suggested, Sandy Munro as a great source of information.

13 Likes
14

Glad we can talk about Tesla. I’ve followed Denny on some of the other boards (aye aye, Capt) and consider him a great resource on the topic, so nice to see his participation here.

One concern I have with TSLA, especially after being scarred by the SaaS crash is … short-term valuation. It’s verboten here to talk about technicals, of course (but then - we weren’t supposed to talk about Tesla before, either?) but if we aren’t calling it technicals, then let’s put it under the broad umbrella of “risk management”. It just seems an awfully extended run up at this point. I shudder with flashbacks to buying DDOG or NET ca Nov 2021. The Fed signaling there are more rate hikes to come, a looming recession at some point - all suggest to me that Tesla will face some short-term weakness into the summer perhaps setting up with a nice buying opportunity in late fall when macro crystalizes. This, perhaps more than any other stock discussed on the board, is subject to macro given it’s consumer-facing focus.

But, acknowledging that macro and technicals (ahem, risk management) is fodder for elsewhere on the Fool, anyone able to weigh in on what their entry is and are you couching it in terms of what we do focus on this board: basing your decision on growth metrics in the next earnings? Are you waiting for more details about their plans to capture subscription revenue for self-driving arm of their business? How does the Saul philosophy specifically pertain to TSLA right now, as opposed to us just talking about TSLA on Saul’s board?

9 Likes
15

No question about it! The germans will be the last men standing, that’s my bet. CCS2, the standard in Europe, to which Tesla also had to adopt by legislation in order to sell over there (same for the China standard), actually works better and has nothing to do with the CCS1 used in North America. The Germans are VERY invested in the CCS standard, specially VW, because of its investment in Electrify America.
One (small) impediment with tesla is its inability to achieve the ultra fast speeds of 800 Volt architecture cars like Porsche Taycan, Hummer EV, Hyundai and Kia. Tesla cars are all 400 Volt system, like Rivian, Ford, and most manufacturers. The other awkward impediment is that NACS is not a real standard in the scientific sense, where multiple manufacturers contribute to its development, but who cares about that (right now). There is fear that Tesla (Elon) will create difficulties over time, but they gave in because they can’t deal with the unreliability of the public CCS network. It’s a real adoption hindrance.
Lastly, it’s unclear if Tesla will sell its hardware to 3rd party networks, specifically its great cables (big cost for CCS chargers and something Tesla managed to keep it way cheaper). This is important because, although the NACS connector is way easier to maneuver and more elegant, this is not why CCS1 is failing. The reason is the poor hardware and uptime of stations. It’s the most common thing to pull in to a CCS station to find all or most charging dispensers off-line. So, will Tesla sell cables/hardware to chargepoint so it can serve the independent charging operators/networks like Chargepoint or EVGO (that’s my wish), or is Tesla’s goal to annihilate the charging competition?

14 Likes
16

Thank you!

Over the years I have developed a Portfolio web-app that lets me track my trades quite accurately, stock by stock and by time periods as well. What you are calling ‘short-term valuation - risk management’ is an attempt to predict the short term market fluctuations and, unless you are a truly exceptional trader, IT CAN’T BE DONE. Follow Peter Lynch’s simple advice, “Sell when the story changes or when you discover you have made a mistake buying the stock.”

The reason for mentioning the Portfolio web-app is that while I have made some good trades, which boosts the ego, overall my port would have been better served by trading less. The fight or flight instinct we acquired on the African Savannah is a poor advisor on the Stock Market Savannah.

Denny Schlesinger

49 Likes
17

Only if you look short term. If you look back to 1 Nov 21 we are still recovering.

8 Likes
18

From Part 1 of the Knowledge Base:

I don’t sell out of a stock because the stock price has gone up. Ever . That’s not a sufficient reason to me, no matter what it does to the EV/S.

This is an interesting question, however:

Pulling from the Knowledge Base again:

I want rapid revenue growth.

From 2020 to 2021, Revenue grew 70%
From 2021 to 2022, Revenue grew 51%

I look for recurrent revenue.

Not much here outside of monthly subscriptions for data ($10month) and FSD ($99/month or $199/month). This is an area for Tesla to grow into, if you believe Tesla will eventually solve FSD and robotaxis.

I really want high gross margins.

Tesla doesn’t satisfy that desire. In 2021 and 2022, Tesla’s gross margins hit the mid 20’s, peaking at 29.11% in Q1 2022l. But in Q1 of this year, Tesla started cutting prices to stoke demand and continue its sales growth, and as a result gross margin declined to 19.34%. There have been a few small price increases since then, but it’s going to take some time for those margins to get back up there. BTW, 19% GM is still really good for an automaker, but even 29% isn’t good for a typical company discussed on this board.

I look for rapidly improving metrics

Tesla is growing unit sales in excess of their long-term 50% CAGR target, started in 2020.
They have been consistently lowering the cost of building cars, both within a factory and with new, improved factories.
Growth in new businesses is exceeding growth in automotive.

I want a dollar-based retention rate over 110%.

Not going to get DBRR with Tesla.

I look for positive and growing Free Cash Flow (FCF).

Q2 2021: $0.61B
Q3 2021: $1.32B
Q4 2021: $2.8B
Q1 2022: $2.2B
Q2 2022: $0.62B
Q3 2022: $3.3B
Q4 2022: $1.42B
Q1 2023: $0.44B

As Tesla’s growth requires investing in new manufacturing facilities, and new vehicle introductions are spaced years apart, it’s not surprising to see FCF vary by quarter.

Almost all of my companies are founder led

Elon Musk is a founder of Tesla and is obviously still involved. Another founder, JB Straubel, who left to start a battery recycling company, was recently elected to the Tesla BoD.

I look for companies that are easy to follow.

There is no shortage of data available on Tesla, it’s one of the most widely followed companies in the world. Additionally, most automotive companies, including Tesla, release production and delivery numbers every quarter (and China releases those numbers monthly), well in advance of the quarterly results and conference calls, so there’s even advance information available, unlike almost every other company, where you don’t know sales results until the ER.

I look for a company that has a long way to grow.

Tesla sold 1.3M vehicles last year and is on track to sell over 10M vehicles in a year before the end of the decade. Its energy business (solar roofs, powerwalls, megapacks) is growing (although I’m disappointed in their growth rates), and there’s YOLO potential for things like full self driving/robotaxies and affordable artificially intelligent robots.

Finally, there is the problem of big numbers.

No doubt, Tesla is huge. It’s currently the 6th largest company by market cap in the S&P 500. Yet, with its core business growing sales at better than 50% CAGR (a trend that shows no sign of slowing down), it’s also a very good grower.

OTOH, Tesla’s large size has not resulted in lower stock price volatility. Tesla is a disrupter in a few industries right now, and my belief is many people have a hard time fully understanding that. As a result, they see Tesla as more vulnerable than it really is.

For instance, BofA just came out with a report that Tesla’s market share is going to decline, with legacy auto recovering. It’s a silly report on a silly metric. There isn’t an “EV market share,” there’s a personal vehicle market share. Tesla will continue to grow sales, not shrink.

And then there’s “valuation.” We could have a whole thread on how the so-called “Dean of Valuation,” Aswath Damodaran, has been wrong on Tesla for several years (as he himself as admitted more than once). My quick summary is that Damodaran has been unable to see that Tesla’s past growth isn’t going to suddenly slow down. A DCF analysis seems like rigor, but it’s really just an equation with variables, and the values for those variables are guesses from a person trying to predict the future.

39 Likes
19

Tesla is a bit of a special case. The renewables revolution would not, could not happen with lead acid batteries. They are too heavy and kill the useful cargo capacity of transportation vehicles. Materials science was needed to find a better alternative. Lithium ion to the rescue. Once the demand for lithium ion batteries grew Wright’s Law takes care of cutting production costs. Lower cost allows the same kind of batteries to be used for stationary storage expanding demand and dropping costs further. Without storage and transmission (the grid) large scale renewable energy adoption is not feasible, the sun does not always shine and the wind does not always blow. A long time ago I had great hopes for high temperature superconductors but that technology has not crossed the chasm, it remains too expensive. Musk realized the above which is the reason he moved Tesla into solar and batteries.

The other special case is the application of AI developed for self driving to enable humanoid robots. In the Science of Complexity these developments are called emergent properties. Not only is Tesla vertically integrated but it is expanding into new markets. From an investor’s point of view this is fantastic, because it leads to follow on growth “S” curves. Previous examples are Apple and Amazon. There is a difference between ‘empire building’ and expansion into the adjacent possible which is what Stuart Kauffman, my favorite Complexity scientist, calls emergent properties.

Apple is not a computer company or a smartphone company. These gadgets all rely on the User Interface that was developed for the Mac. That is Apple’s core business and things like the iStores, the App Store
are some of Apple’s emergent properties. Vertical integration properly done.

Returning to Tesla, don’t value it solely as a car company, think storage, think VPP, think robots, think all the bits and pieces of vertical integration. Be on the lookout for great management. Tesla biggest brisk is losing Musk.

It was hard to imagine why people would want a personal home computer. It was hard to imagine how an online bookstore could evolve. It’s easy to see where the green revolution is going.

Denny Schlesinger

42 Likes
20

I respectfully disagree.

While the energy business is growing, it’s still a small percentage of the overall business, and the gross margins remain lower than those in the automotive business, even with Q1’s automotive gross margin decline. From Tesla's Energy Storage Business Is Growing Like Gangbusters | The Motley Fool :slight_smile:

QUARTER ENERGY BUSINESS’S PERCENTAGE OF TOTAL REVENUE ENERGY BUSINESS’S PERCENTAGE OF TOTAL GROSS PROFIT
Q1 2022 3.3% N/A: segment had negative gross profit
Q2 2022 5.1% 2.3%
Q3 2022 5.2% 1.9%
Q4 2022 5.4% 2.8%
Q1 2023 6.6% 3.7%

AND

QUARTER ENERGY BUSINESS’S REVENUE GROWTH YOY
Q3 2022 $1.12 billion 39%
Q4 2022 $1.31 billion 90%
Q1 2023 $1.53 billion 148%

So while the YoY percentages look great, it remains to be seen if this recently consistent ~$200M increase trend will actually accelerate, as it hasn’t yet. I will acknowledge that Tesla is expanding the Megapack facility in Latrop. But, at this point, I suspect a bigger near term opportunity for Tesla is large battery storage at heavy usage SuperChargers in order to reduce Tesla’s cost of electricity (which probably includes additional “demand charges” during high peak usage).

But, none of this is, to me, worth placing into Tesla’s valuation as anything other than a “maybe.” Tesla’s been working on the Solar Roof since 2016 and there’s not yet much to show for it. Companies like Enphase make powerwall type products that are more flexible than Tesla’s. It’s like adding a grocery business (Whole Foods) to Amazon when what we really want is an AWS type business to be added. The energy business does not seem to rise to the level of a AWS-level addition for Tesla, especially considering how quickly automotive continues to grow.

That AWS-level business could be FSD, robotaxis, or Optimus robotics, but none of those are anything more than a maybe right now. Those with faith in Musk and Tesla will assign more value to them, but in any case they are years out even in the most optimistic views.

Nearer term there is the Cybertruck. This is a polarizing vehicle, and much of Wall Street doesn’t believe it’ll be hugely successful for Tesla. For instance, Tesla mostly bullish Adam Jonas thinks it “will more likely be an enthusiast/cult car with far more limited volume,” pegging annual sales as hitting about 50,000 units.

For comparison, the Ford F-150 series sells upwards of 650k units a year. Recent rumor is that Tesla has instructed suppliers to prepare for 375k units per year. I suspect a lot depends on pricing, and this is up in the air for us outside the company. Initially targeting a base model under $40k, Musk has admitted it’s a hard vehicle to build, and it’s already years late. Additionally, even Ford has been raising prices on its F-150L electric pickup, so maybe the need to keep prices low won’t be a thing for a couple of years. I think Tesla will see huge demand for the CyberTruck, which will surprise Mr. Market positively.

36 Likes